Detroit union victory worth 'refund on deck of Titanic'

(Corrects 1st paragraph to show judge ruled pension boards can reinstate checks. Corrects 5th paragraph to show the city council does not issue checks, but sets policy, and pension board issues the checks.)

By Joseph Lichterman

Oct 4 (Reuters) - Detroit's largest public sector union scored a symbolic victory Friday when a Michigan administrative law judge said one of the city's pension funds could reinstate an extra annual pension check for city workers and retirees, and make retroactive bonus payments, although the judge in the city's bankruptcy case has prohibited enforcement of the ruling.

Bankruptcy Judge Steven Rhodes earlier this week allowed Administrative Law Judge Doyle O'Connor to rule on the so-called 13th check before O'Connor's retirement on Friday. But Rhodes forbade the parties from pursuing the matter further.

Rhodes has stayed all existing litigation against the city since taking charge of the bankruptcy case, the largest municipal bankruptcy in U.S. history. Yet on Tuesday Rhodes ruled O'Connor could proceed because a ruling would not injure Detroit.

O'Connor himself granted that the limitations imposed might offer "little more solace than an assurance of a full ticket-price refund offered while still on the sharply tilting deck of the Titanic."

Earlier this year, O'Connor read a verbal opinion supporting the case brought by the American Federation of State, County and Municipal Employees, claiming Detroit short-changed its members beginning in November 2011 when the city council ended the policy of paying bonus pension checks. The city's General Retirement System board issued the checks.

For decades prior, the city's General Retirement System would give bonuses to retirees and active employees when it earned more than 7.9 percent on its investments.

That payment and others cost the pension fund $1.92 billion from 1985 to 2008, a 2011 report to city council said.

AFSCME argued the city violated labor laws by unilaterally ending the extra checks. O'Connor said in February that "the change directly affected an existing and fundamental condition of employment."

Detroit's state-appointed Emergency Manager Kevyn Orr has said the policy contributed to the underfunding of the city's two pension funds, which he says have $3.5 billion in unfunded liabilities. The city's unions and pension funds dispute that figure.

O'Connor on Friday estimated the bonus money in question at roughly $174 million. He urged the city and union to seek a negotiated settlement of the matter. (Reporting by Joseph Lichterman; Editing by David Greising and Prudence Crowther)